Lifetime Capital Gains Exemption (LCGE) Canada 2025: $1.25 Million Explained

For Canadian small business owners, farmers, and fishing operators, the Lifetime Capital Gains Exemption (LCGE) is the single most valuable personal tax break in the Income Tax Act. In 2025, it shelters up to $1,250,000 of capital gains from tax — potentially saving hundreds of thousands of dollars when you sell your business or farm.

What is the LCGE?

The LCGE is a cumulative lifetime deduction that lets you reduce or eliminate capital gains tax on the sale of certain qualifying Canadian properties. The exemption is available to Canadian resident individuals (not corporations or trusts directly).

The 2025 LCGE limit: $1,250,000

This applies to the combined lifetime capital gains from qualifying properties — it's not a per-transaction limit but a total you accumulate over your lifetime.

What qualifies for the LCGE?

The LCGE applies to capital gains from the disposition of:

1. Qualified small business corporation shares (QSBCS)

Shares of a Canadian-controlled private corporation (CCPC) where, at the time of sale:

• At least 90% of the fair market value of the corporation's assets are used in an active business carried on in Canada
• Throughout the previous 24 months, more than 50% of the assets were used in an active Canadian business
• The shares were owned by you (or a related person) for at least 24 months before the sale

This is the most commonly used category — it covers the sale of most owner-operated Canadian businesses.

2. Qualified farm property (QFP)

Farmland, quota, family farm corporation shares, and partnership interests used in farming operations that meet specific eligibility requirements, including Canadian residency and active use conditions.

3. Qualified fishing property

Similar rules as QFP but for fishing operations.

How the LCGE reduces your tax

The LCGE is claimed as a deduction against the taxable capital gain on your T1. In 2025:

1. Capital gain = $1,500,000 (sale of a qualifying business)
2. Taxable capital gain = $1,500,000 × 50% = $750,000
3. LCGE available = $1,250,000 (assume unused)
4. LCGE deduction = min($750,000, $1,250,000 × 50%) = $625,000
5. Net taxable gain after LCGE = $750,000 − $625,000 = $125,000

Without the LCGE, a $1,500,000 gain at a 48% marginal rate would produce $360,000 in tax. With the LCGE, the same gain produces approximately $60,000 in tax — a saving of $300,000.

Important: The LCGE deduction is applied against the taxable capital gain (after the 50% inclusion rate). The limit of $1,250,000 refers to the full capital gain (pre-inclusion); the maximum deduction against taxable income is $625,000 (half of $1,250,000).

Cumulative net investment losses (CNIL)

The LCGE you can claim in a given year is reduced by your cumulative net investment losses (CNIL) balance. CNIL accumulates when your investment expenses (interest, carrying charges) exceed your investment income over your lifetime. If you have a significant CNIL balance, you may not be able to claim the full LCGE.

Capital gains exemption vs. other exemptions

The LCGE is separate from and in addition to the principal residence exemption (which covers your home). You can claim the full LCGE on a business sale even if you've also sold a home tax-free using the principal residence exemption.

Planning for the LCGE

To maximize the LCGE on a business sale:

• Start the 24-month clock early. Shares must be owned for 24 months and meet the active asset test throughout that period.
• Clean up the corporation. Excess cash, investments, or non-active assets (called "tainted" assets) can cause shares to fail the qualifying test. Work with a tax advisor to move out non-active assets well before the sale.
• Consider an estate freeze. Introducing family members as shareholders through an estate freeze allows multiple family members to claim their individual LCGE on a future sale, multiplying the exemption.
• Use a holding company carefully. Structuring matters — dividends paid to a holding company remove cash from the active business corporation, which can help satisfy the 90% active asset test.

Related guides and tools

• Canadian Capital Gains Tax Calculator
• How Capital Gains Tax Works in Canada (2025)
• Capital Gains Inclusion Rate — History & 2025
• Principal Residence Exemption Guide
• Capital Losses — Carryback & Carryforward